Key Takeaways:
- New tax laws and ASC 740 changes require updated processes and financial reporting disclosures.
- Private companies must prepare for ASU 2023-09 enhanced income tax disclosure rules.
- Improved tax data, technology, and risk controls can elevate the tax function’s strategic value.
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From legislation like the One Big Beautiful Bill Act (OBBBA) to new accounting standards under ASC 740, private companies face a wave of tax reporting changes that will directly impact financial statements. Navigating this environment demands not only technical compliance, but strategic foresight — and mature tax operations that can meet rising expectations from executives, auditors, and regulators.
Tax Law Changes and ASC 740 Implications
The OBBBA, signed into law in July 2025, made sweeping updates to federal tax law. Under U.S. generally accepted accounting principles (GAAP), these changes are considered enacted as of that date; and they affect income tax accounting in areas such as current and deferred taxes, valuation allowances, and disclosures.
Among the most impactful corporate provisions are:
- The restoration of 100% bonus depreciation
- Reinstated expensing of domestic research and experimentation (R&E) expenditures under Section 174
- Changes to the Section 163(j) interest deduction limitation
- Updates to energy credits, foreign-derived intangible income or FDII (now foreign-derived deduction-eligible income or FDDEI), and global intangible low-taxed income or GILTI (now net CFC tested income or NCTI)
- Expanded Section 162(m) rules on covered employees
For most companies, these changes require re-evaluation of deferred tax balances and valuation allowances under ASC 740. Retroactive provisions, such as R&E expensing or bonus depreciation, may also trigger catch-up adjustments in quarterly tax provisions.
Valuation Allowance Considerations
New projections of future taxable income may shift judgments about whether deferred tax assets (DTAs) are realizable. For example, companies previously subject to a full valuation allowance under the 30% Section 163(j) interest cap might now have a stronger case to recognize a portion of those DTAs with the reversion to the more favorable earnings before interest, taxes, depreciation and amortization (EBITDA)-based limit.
International and State Tax Layers
The OBBBA changes extend beyond U.S. corporate tax. New rules for foreign income, including increased effective rates for NCTI and FDDEI and a higher base erosion and anti-abuse tax (BEAT) rate, impact international tax positions. These changes are effective for 2026.
State tax adds another layer of complexity. Conformity to federal changes varies widely, and companies must carefully assess how new federal tax rules apply across their state’s footprint — especially bonus depreciation, Section 174, and foreign income inclusions.
New Income Tax Disclosures Under ASU 2023-09
Private companies must also prepare for Accounting Standards Update (ASU) 2023-09, which brings significant changes to income tax disclosures. Effective for fiscal years beginning after December 15, 2025, the new rules aim to improve transparency in two major areas:
1. Income Taxes Paid
Companies will need to disaggregate taxes paid by jurisdiction and provide more detail for any country (or state) that accounts for at least 5% of total taxes paid.
2. Rate Reconciliation
Private companies must disclose the nature and effect of reconciling items between the statutory and effective tax rates — though they don’t have to provide a numeric table. Required categories include state and local taxes, tax credits, valuation allowance changes, and effects of tax law changes.
These changes mean tax teams must enhance data gathering, documentation, and coordination with finance teams to avoid missed disclosures or misstatements.
Elevating the Tax Function: Technology and Strategy
To keep up with these reporting demands, mature tax departments are embracing tools like tax provision software and workflow automation. These investments reduce risk, enhance accuracy, and free up tax leaders to focus on strategic planning.
The most effective tax functions:
- Develop tax flight plans to streamline year-end reporting
- Document key performance indicators (KPIs) and explain forecast-to-actual variances
- Conduct cross-functional tax risk reviews to stay ahead of audit issues
- Participate early in business decision-making to assess tax impacts in real time
Preparing Your Business for the Next Era of Tax Reporting
2026 brings significant change to corporate tax reporting. MGO helps private companies stay ahead — modernizing tax systems, adapting to evolving disclosure rules, and empowering tax leaders with tools and insights to support strategic decision-making.
From ASC 740 planning to ASU 2023-09 readiness, our professionals deliver clarity, compliance, and confidence in a complex reporting landscape. Reach out to our team today to review your reporting processes and prepare your organization for the new requirements.
